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Variable Life Insurance: Possibilities for Young Investors

If you are allocating a portion of your income to retirement investmentsand you should beask your broker if he is able to sell variable life products.
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Variable lifealso called appreciable lifeis not a universal, "one size fits all" policy, and is probably not for senior investors, but they can be a way to fulfill two needs at once.

Recognize the Need
How? First, you know you need life insurance unless you wealthy enough that your family will be taken care of in the event of your death.

Secondly, even if your employer is putting money into a 401 K or pension plan for you, the amount you can invest via pay-roll deduction is limited. If you work for the same employer for 20 or 30 years (unlikely in today's every changing world of mergers, closings, acquisitions, etc), and if your employer has a matching plan though which he contributes additional funds beyond your payroll deduction, a 401K can be significant. However, you need to recognize that while many of today's babyboomer generation and young seniors (early 60s) have huge 401K and IRA resources, the day of the generous employer is over. A pension plan offered as part of a new job today could be sold to a third party next month, and the terms radically changed.

Bottom line? The only way to KNOW that you are saving for retirement is to decide from your very first job that if you make a dollar, a dime will go into savings. It sounds insignificant, but if you get into the habit of paying yourself first, you'll have money when that day comes that you need it.

Variable Life as Part of the Plan
So, what does that have to do with Variable Life Insurance? A Variable Life policywhich can only be sold by a person with a General Securities licenseoffers you a way to have life insurance and investments at the same time. You could think of it as having a life insurance rider on your mutual fund account, although that isn't entirely accurate. You have a life insurance policy of a certain face amount. Your premiums are invested in mutual funds, stocks, bonds, or anything you choose that is available through the company. In the early years, a portion of your premium goes to pay the cost of insurance and fees, and the remainder is invested. If your investments perform well, you may be able to stop paying your premium in later years and simply let the investments pay for the death benefit.

People often use VL policies as a shelter for their investments, particularly if saving for a child's college education. That's because life insurance is sheltered from a financial need analysis, meaning the value in your life insurance policy is not included when applying for financial aid. Furthermore, there are no limits on the amount of money that can be invested, and contributions in the mutual fund side can be withdrawn or borrowed against without tax penaltyunlike an IRA.

VL Not for Everyone
Variable life policies are not for everyone, and they do have some downsides. The biggest may be that if your account value drops due to a down turn in the market, you may have to increase your premium to keep from having a lost in the death benefit. Withdrawals from the accumulation will also reduce the death benefit. Finally, while there is no "tax" penalty for withdrawals, there are usually surrender charges in the first 10 to 20 years, depending on the company. Because of these surrender charges, it is not advisable to use a VL as a college investment tool unless the child is very young when the policy is purchased. Also, while withdrawals are considered "not taxable," they can be taxable if the total of the withdrawals is more than the premium that was paid in.

There is no question that a VL is riskier than other types of life insurance as there is no guarantee on your cash value. Most companies will offer a minimum death benefit that will be paid as long as you continue to pay a premium; if you die prematurely, however, your beneficiary may get the death benefit but not the investment side of the policy. Again, that varies by company, so you need to have all the details before purchasing a VL. Furthermore, you need to either be stock market savvy yourself or have a broker with a track record whom you can trust to monitor the investment side of the policy.

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